In our industry, inheritance tax (IHT) is often referred to as the voluntary tax, simply because there are so many ways to plan and arrange your affairs to avoid it. IHT applies to UK domiciles. Unlike many other British taxes which can be eliminated once a non-resident, it is likely that, as a British citizen, wherever you live in the world, your estate will be subject to IHT upon your death.

Domicile or deemed domicile has complex rules, and the British government seem to be focusing on tightening them. Generally, if you were domiciled in the UK within the last three years, or have spent the last 17 out of 20 years in the UK, you are deemed UK domicile. It can also be automatically determined by the domicile of your father at the day of your birth if your parents were married, or by the domicile of your mother if they weren’t.

Unfortunately, rules are not quite clean-cut, and the domicile test may be done at the point it is too late, upon death.  There are many scams around changing domicile which we’re not comfortable with and would not recommend, as inheritance tax and domicile is only really confirmed upon death, planning is not a clear path, and any adviser telling you they can help on this actually can’t be sure.

Death isn’t the nicest of topics, but it is one of those areas of financial planning we must address. Under current UK legislation, a single person will be taxed at 40% on their estate in excess of the nil-rate band of £325,000. Couples are not taxed on first death, and the surviving spouse has both ‘nil-rate’ bands to utilise upon their death, in the event all assets from the spouse were left to them.

Of course, there have been new rules proposed by the British government which will allow for a main residence to pass through generations, within limits. However as an ex-pat ensuring you are no longer UK resident, it is unlikely these will benefit you, at least in the short term. So what can you do?

The most straightforward way of reducing your estate, and so your exposure to inheritance tax, is to begin gifting assets away. As many are aware, such a gift will be free of IHT after 7 years, and tax liability does reduce as those years go by, there are also small annual exemptions and allowances to utilise. However, we’re talking about your money; your assets, so are you comfortable gifting away hundreds of thousands of pounds, investment portfolios, properties or other assets so that your family can avoid a tax after your death? If not, there are still many planning opportunities available to you, the main being the use of trusts, which can be much more appealing.

Trusts are effectively a way of gifting away assets, but there are many types and structures of trust which can best suit you dependent on your priorities, health, aims and objectives. For example, investing within a loan trust means you can maintain access to the capital you invest, but any growth is immediately outside of your estate for IHT. A discounted gift trust (DGT) must provide you with an income from your money, but upon investment you are medically underwritten, and can benefit from an immediate ‘discount’ from inheritance taxes. Then there’s more basic trusts like the bare trust or the standard discretionary trust.

In any case, if you have overall wealth (excluding pensions) in excess of £325,000 as a single person, or £650,000 as a married couple, it’s important you review your options. Also make sure you consider any life cover – if not already written under trust this will also form part of your taxable estate.

It will be much nicer to have that conversation now, while in good health, than when the worst happens and your health may not be the same as it were and perhaps your mortality becomes a concern or a reality.